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U.S. Cellular reports first quarter 2017 results

As previously announced, U.S. Cellular will hold a teleconference May 5, 2017, at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

United States Cellular Corporation (NYSE:USM) reported total operating revenues of $936 million for the first quarter of 2017, versus $969 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $26 million and $0.31, respectively, for the first quarter of 2017, compared to $9 million and $0.10, respectively, in the same period one year ago.

"As we outlined at the beginning of 2017, our priorities for the year include protecting our customer base and aggressively promoting our products and services with economically justified offerings," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We executed on these priorities during the first quarter and made important progress.

"Although we would have liked to have seen more new customer connections, we were very pleased with the continuing loyalty of our existing customers which was reflected in low handset churn. We also have seen a favorable response to our new Total Plans, including unlimited options, and the recent launch of the Samsung Galaxy S8. Our disciplined approach to promotional activity and our focus on cost management in all parts of the business resulted in a strong increase in profitability this quarter.

"We continued making investments in our high-quality network, moving closer to our first commercial deployment of Voice over LTE technology. Also, in the recently completed FCC incentive auction, we acquired 600 MHz low-band spectrum in many of our markets which will enable us to better meet our customers' growing demand for data services over the long-term."

2017 Estimated ResultsU.S. Cellular's current estimates of full-year 2017 results are shown below. Such estimates represent management's view as of May 5, 2017. Such forward‑looking statements should not be assumed to be current as of any future date. U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events or otherwise. There can be no assurance that final results will not differ materially from such estimated results.

2017 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues (1)

$3,800-$4,000

Unchanged

Operating cash flow (1)(2)(3)

$550-$650

$500-$650

Adjusted EBITDA (2)

$700-$800

$650-$800

Capital expenditures

Approx.

$500

Unchanged

The following table provides a reconciliation of Net income to Operating cash flow and Adjusted EBITDA for 2017 estimated results, actual results for the three months ended March 31, 2017, and actual results for the year ended December 31, 2016. In providing 2017 estimated results, U.S. Cellular has not completed the below reconciliation to net income because it does not provide guidance for income taxes. Although potentially significant, U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, U.S. Cellular is unable to provide such guidance.

Actual Results

2017 Estimated

Results

Three Months EndedMarch 31, 2017

Year Ended

December 31, 2016

(Dollars in millions)

Net income (GAAP)

N/A

$

28

$

49

Add back:

Income tax expense

N/A

33

33

Income (loss) before income taxes

(GAAP)

$

(45)-55

$

61

$

82

Add back:

Interest expense

110

28

113

Depreciation, amortization and accretion expense

630

153

618

EBITDA (Non-GAAP)

$

695-795

$

242

$

813

Add back (deduct):

(Gain) loss on license sales and

exchanges, net

(15)

(17)

(19)

(Gain) loss on assets disposals, net

20

4

22

Adjusted EBITDA (Non-GAAP) (2)

$

700-800

$

229

$

816

Deduct:

Equity in earnings of unconsolidated entities

140

33

140

Interest and dividend income (1)

10

3

6

Other, net

–

(1)

1

Operating cash flow (Non-GAAP) (1)(2)(3)

$

550-650

$

194

$

669

Note: Totals may not foot due to rounding differences.

(1)

Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change.

(2)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above. Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above. Adjusted EBITDA and Operating cash flow are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. U.S. Cellular does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Operating cash flow are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of U.S. Cellular's financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for March 31, 2017, actual results can be found on the company's website at investors.uscellular.com.

Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.uscellular.com. The call will be archived on the Events & Presentations page of investors.uscellular.com.

About U.S. CellularUnited States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to customers with 5 million connections in 23 states. The Chicago-based company had 6,200 full- and part-time associates as of March 31, 2017. At the end of the first quarter of 2017, Telephone and Data Systems, Inc. owned 83 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute U.S. Cellular's business strategy; uncertainties in U.S. Cellular's future cash flows and liquidity and access to the capital markets; the ability to make payments on U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings of U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of services and products offered by U.S. Cellular. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by U.S. Cellular to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein.

Average Revenue Per User ("ARPU") – metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:

▪

Postpaid ARPU consists of total postpaid service revenues and postpaid connections.

▪

Prepaid ARPU consists of total prepaid service revenues and prepaid connections.

(2)

Average Billings Per User ("ABPU") – non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(3)

Average Revenue Per Account ("ARPA") – metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

(4)

Average Billings Per Account ("ABPA") – non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(5)

Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

(6)

Includes reseller and other connections.

(7)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change.

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Three Months EndedMarch 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income

$

28

$

9

Add (deduct) adjustments to reconcile net income to cash flows from operating activities

Depreciation, amortization and accretion

153

153

Bad debts expense

24

19

Stock-based compensation expense

7

5

Deferred income taxes, net

1

4

Equity in earnings of unconsolidated entities

(33)

(35)

Distributions from unconsolidated entities

11

14

(Gain) loss on asset disposals, net

4

5

(Gain) loss on license sales and exchanges, net

(17)

–

Changes in assets and liabilities from operations

Accounts receivable

26

15

Equipment installment plans receivable

(44)

(41)

Inventory

(3)

(2)

Accounts payable

(78)

43

Customer deposits and deferred revenues

(10)

(6)

Accrued taxes

22

30

Accrued interest

9

9

Other assets and liabilities

(39)

(59)

Net cash provided by operating activities

61

163

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(88)

(103)

Cash paid for licenses

(3)

–

Cash received from divestitures and exchanges

16

2

Other investing activities

–

(1)

Net cash used in investing activities

(75)

(102)

Cash flows from financing activities

Repayment of long-term debt

(3)

(3)

Common shares reissued for benefit plans, net of tax payments

3

1

Common shares repurchased

–

(2)

Net cash used in financing activities

–

(4)

Net increase (decrease) in cash and cash equivalents

(14)

57

Cash and cash equivalents

Beginning of period

586

715

End of period

$

572

$

772

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

March 31,

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

572

$

586

Accounts receivable from customers and others, net

705

727

Inventory, net

141

138

Prepaid expenses

85

84

Other current assets

21

23

Total current assets

1,524

1,558

Assets held for sale

5

8

Licenses

1,895

1,886

Goodwill

370

370

Investments in unconsolidated entities

434

413

Property, plant and equipment

In service and under construction

7,742

7,712

Less: Accumulated depreciation and amortization

5,365

5,242

Property, plant and equipment, net

2,377

2,470

Other assets and deferred charges

419

405

Total assets

$

7,024

$

7,110

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

March 31,

December 31,

2017

2016

(Dollars and shares in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

11

$

11

Accounts payable

Affiliated

9

12

Trade

208

309

Customer deposits and deferred revenues

180

190

Accrued taxes

58

39

Accrued compensation

43

73

Other current liabilities

78

84

Total current liabilities

587

718

Deferred liabilities and credits

Deferred income tax liability, net

827

826

Other deferred liabilities and credits

311

302

Long-term debt, net

1,616

1,618

Noncontrolling interests with redemption features

1

1

Equity

U.S. Cellular shareholders' equity

Series A Common and Common Shares, par value $1 per share

88

88

Additional paid-in capital

1,529

1,522

Treasury shares

(132)

(136)

Retained earnings

2,185

2,160

Total U.S. Cellular shareholders' equity

3,670

3,634

Noncontrolling interests

12

11

Total equity

3,682

3,645

Total liabilities and equity

$

7,024

$

7,110

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

March 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

61

$

163

Less: Cash paid for additions to property, plant and equipment

88

103

Free cash flow (Non-GAAP) (1)

$

(27)

$

60

(1)

Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after Cash paid for additions to property, plant and equipment.

Postpaid ABPU and Postpaid ABPA

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment sales resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment sales revenues received from customers.